Wachovia gets penalized for poor oversight

Wachovia Corp. will pay as much as $144 million to settle a U.S. regulator's claims that the bank's poor oversight allowed telemarketers and payment processors to withdraw millions of dollars from customers' accounts.

Wachovia, the fourth-largest U.S. bank and one of the biggest in South Florida based on its share of customer deposits, will pay as much as $125 million in restitution to customers, a $10 million civil penalty and $8.9 million for consumer-education programs, the U.S. Office of the Comptroller of the Currency said Friday.

The Charlotte, N.C.-based bank agreed to the settlement without admitting or denying wrongdoing, Washington-based OCC said.

The settlement stems from an 18-month investigation that determined Wachovia profited from fees and other charges on accounts maintained by payment processors and telemarketers who took advantage of thousands of consumers, most of them elderly, from June 2003 through December 2006.

"The OCC concluded that the bank engaged in unsafe or unsound practices during the course of its relationships with the payment processors and telemarketers," the agency said.

Telemarketers got account information over the phone by selling consumers "questionable" products such as identity-theft certificates, according to the statement. The information was then used to transfer funds from customers' accounts to Wachovia accounts held by the companies without authorization or without providing products, the regulator said.

Wachovia's risk-management and loss-management staffs "failed to take quick action to terminate these account relationships or otherwise correct the problem," the OCC said.

"This situation was unacceptable and we regret it happened," Wachovia spokeswoman Christy Phillips Brown said in a telephone interview. "We will work diligently to provide restitution to consumers affected by the situation and to educate consumers. Wachovia is pleased to have resolved this matter with the OCC."

Two class-action lawsuits filed on behalf of former Wachovia customers seek total damages of more than $500 million, said Howard Langer, the Philadelphia attorney representing the customers. The cases are scheduled for trial in November in the U.S. District Court for the Eastern District of Pennsylvania.

"The behavior of Wachovia was extraordinarily shameful," said Langer, a partner at Langer Grogan & Diver. "It wasn't just the money that the telemarketers took, but also that Wachovia charged its own customers hundreds of thousands of dollars in overdraft fees."